EquaTerra's managing director talks about the outsourcing study's most notable results, his view of the market and why RPO is so slow to catch on.

By Andrew R. McIlvaine

Sunday, March 16, 2008

For its latest HR Outsourcing Special Report, HRE and EquaTerra conducted a survey of 450 HR leaders to examine what they were doing to making the HR function more strategic and what, if any, role recruitment-process outsourcing was playing in those efforts.

What do you consider to be the most notable results of this year's survey?

I think a couple things: One, if you look at what we did this year versus a similar survey we did in 2005, not a lot of progress has been made relative to making HR more strategic. The majority of respondents said HR was strategic, but the number didn't go up from 2005. It wasn't less, which was good.

Also, respondents' satisfaction levels around HRIT and people slipped a bit from 2005 -- not a lot, but they did slip. So there's still a lot of room for improvement at making HR more strategic and in improving capabilities around processes and HRIT.

Another thing which resonated in this study and is reinforced by other evidence we've seen, is the clear focus around talent management to making HR more strategic and more competitive.

There's a growing consensus that talent management should be the focus of HR, for a lot of reasons: The world is getting more competitive, people are coming into the workforce with inadequate skills, there's more global competition for labor, and so on.

Did anything surprise you about this year's results?

Surprises? We hadn't done a lot of research around recruitment-process outsourcing and I would've expected a greater uptake of RPO than we saw from this year's survey, which is that about 19 percent of respondents had undertaken RPO.

It showed while RPO is talked about a lot, it may not be as mature as one would think, given the amount of players targeting the space and the coverage it's getting. RPO is regularly identified as a hot and emerging area, but it's not as pervasive as I would've thought. ...

As far as the role of RPO in the bigger picture of total talent management, there doesn't seem to be a huge correlation that RPO is going to significantly impact overall TM capabilities; it seems to be focused around the more tactical facets of recruiting -- drug testing, pre-employment testing -- things that are important, but not strategic.

Do you think this low rate of uptake is based on skepticism from HR leaders about the RPO vendors themselves or could it be reluctance on their part to have an outside firm take on so much of the recruiting function?

There is a perception among end-users that recruiting's just too strategic to turn over to an outside vendor. But on other hand, there could be a perception that the business case for RPO may not be so great -- perhaps the cost of making the investment may not be commensurate with the expected returns.

RPO is more pervasive in larger organizations; in this study, it was more common among larger firms. Industries that go through a lot of recruiting -- that have more contract, seasonal labor -- there, I think RPO can make more sense, because of the cyclical nature of their work.

So end-users may need to think about their industry and the size of their firms when it comes to evaluating whether RPO might make sense.

We did have a good share of respondents from the public sector in this survey and RPO is not very strong in the public sector, even though they have a lot of challenges in recruiting. Once you get more economies of scale, RPO can make more sense.

If you were an RPO provider, what would you take away from this survey?

Obviously, there's a lot of tire kicking going on among potential buyers. If I was a provider in this market, I would really look at how can I get beyond general market awareness.

There's lots of awareness around RPO, but how can providers get buyers to actually buy these services? Maybe hone your focus, look at certain industries and take a tailored approach -- the retail industry, for example -- and tailor your offerings to fit the needs of specific industries.

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The other thing is looking at buyers to help build the business case to show why RPO is worthwhile -- how do you build the business case that gets the buyer to pull the trigger.

Also, you want to make sure you're doing a good job -- the satisfaction levels among the respondents were OK in terms of achieving the benefits sought, but there was certainly room for improvement. If I was a potential buyer, those satisfaction levels -- not bad, but not too good -- are not going to make me go out and sign an RPO contract.

So you want to drive up those satisfaction levels to make sure potential buyers hear about how much benefit this type of service can bring. And satisfaction rates for RPO aren't too dissimilar to overall HRO satisfaction levels. HRO is typically behind IT outsourcing in terms of customer satisfaction. So HRO vendors in general need to improve the satisfaction levels among their existing customers.

What's your view
of the overall HRO market?

That, in general, there's a slow uptake of HRO -- slower than people expected.

I think the market is continuing to grow, but at a modest to moderate pace, and that customer satisfaction levels are OK, but not high or improving.

Also, there still are a lot of buyers that still don't feel HRO is really the tool they should use to address some of their problems.

But I think the other thing is that a lot of other steps have already been tried: reorganizations, investments in new technology and so forth that haven't necessarily worked, so it raises the question that, well, maybe outsourcing merits some exploration because so many other things have been tried.

That said, buyers should also be realistic about what they're going to get from outsourcing. They may see some benefits, but they won't necessarily be dramatic.

So overall, the market is maturing, and it may be more mature than previously thought. However, if you look at certain industries that are facing a lot of problems right now -- public utilities are facing a wave of retirements, for example, and the financial sector needs to cut costs drastically -- those challenges aren't going away, or they're probably getting worse, and those industries should be looking at alternative ways of doing things, and one of those avenues could be outsourcing.